Index Gives Up Early Gains

Keep your position size reasonable, because violent swings will probably be more the norm than anything else.

• The NASDAQ 100 Index initially tried to rally Monday but gave back gains as traders are starting to run into a significant amount of technical resistance.
• Ultimately, this is a market that I think will continue to see a lot of noisy behavior, and you need to be cognizant of the fact that we ended up forming a shooting star, a very bearish sign indeed.

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Eyeing the 13,000 Level

At this point, now we start to pay attention to the 13,000 level. If we break it down below there, could open up even more selling going forward, opening up the possibility of an attempt at the 50-day EMA which is currently sitting right around the 12,250 level. Breaking down below that opens up a wave of selling. The question now is whether or not interest rates will have to continue to go higher but there will be a lot of questions between now and Wednesday as we have to wait for the CPI figures. The CPI numbers will continue to be closely watched by the Federal Reserve as inflation is by far the biggest thing they are concerned about.

Alternately, if we were to break above the 13,500 level, that opens up the possibility of a move to the 200-day EMA which is closer to the 14,000 level. I don’t necessarily expect to see that happen, but the stock market is so disconnected from the real economy that it would not be a huge surprise. Ultimately, I would anticipate that we still have plenty of volatility ahead of us, and as long as volatility is relatively elevated, that does tend to bring significant selloffs occasionally. I do think that the biggest push lower has probably already happened, but I also recognize that there are a lot of things that could go wrong in the relatively near term.

We are a little overbought anyway, so a bit of a pullback does make sense. Furthermore, we are right smack dab in the middle of an area that’s been important multiple times, so one would think that a certain amount of market memory should come into play in this region. Keep your position size reasonable, because violent swings will probably be more the norm than anything else.

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